Amazon, Reliance and Future (of) Retailing


Well-Known Member
It now appears that there may be a cloud over Kishore Biyani’s distress sale of Future Retail to Reliance Retail.

Amazon has an extremely strong case on 2 fronts - they have a right of first refusal which Biyani didn’t honor, plus they have an explicit black-listing of any transaction with Reliance Retail.

So irrespective of what happens with Future Retail, it is highly unlikely that Reliance Retail will be able to buy it on the cheap.

My guess is that Amazon is not going to let this slip easily - and they will ensure that Biyani pays a price for ignoring Amazon’s overtures.

This is likely to end with status quo ante for Reliance Retail, and a huge loss for Kishore Biyani. Amazon may not explicitly benefit from this - except to extent of preventing the sale to Reliance Retail.

But there are some interesting tidbits that are coming out in court. Amazon’s cosy relationship with Narayanamurthy’s Catamaran on Cloudtail to bypass foreign restrictions is already well known. Now it seems like they also have a willing partner in Premji Invest - to buy Future Retailing on the cheap.

I don’t think Mukesh Ambani will take this lying down - so expect some attention on Catamaran and Premji Invest’s willful bypassing of foreign restrictions on retail in coming future.

But in short term, this is a negative for markets, and this sort of confusion is probably not the best thing for Reliance and Future retailing, right at the start of the festival shopping season!


Well-Known Member
CCI ruling in favor of Reliance seems like extremely positive thing - but in reality, CCI was never the issue. Despite the top two players in physical retail being involved, CCI also knows that both players have an insignificant presence in the game that matters - which is online retail. So CCI approval was somewhat expected.

The real battle is before the courts. My take is that Reliance likely will win the battle in the courts - but it may take some time.

Amazon has a strong moral case - where Kishore Biyani made some commitments, and refused to honor his commitments. But Amazon has a weak legal case, because Kishore Biyani is not the same as Future Retail - and Future Retail is not bound by whatever Kishore Biyani agreed to.

Yes - Amazon has a strong case against Kishore Biyani for violating the commitments made - but the catch is, they can at best get their money back, with interest. They can’t stop this deal between Future Retailing and Reliance.

Amazon was forced to do this deal with a convoluted structure, because of Indian laws restricting FDI in multi-brand retail. India needs to do a rethink on these laws - because they make little sense in today’s world. Multi Brand retail is a large industry, but it’s definitely not something with strategic consequences- like Defense or Telecom or Banking. Considering we allow FDI even in strategic industries, this restriction on FDI in multi brand retail makes zero sense, and it distorts the market against Amazon and Walmart. We need to create a better environment to encourage FDI - and such rules are not going to help.

My sense is that Amazon might lose the legal battle - but probably this will be a wake up call to the government - to remove silly restrictions. As it is, many people feel that the Modi administration is convenient for Ambani abd Adani - and such ridiculous rules only encourage such perceptions, which is unhealthy and unfortunate.
At current prices, Reliance is trading at 30 times past 12 months earnings. Of which 2 quarters were badly hit by COVID - with their Oil and Retail business seeing massive impact.

Oil prices are firming up as the global economy sputters back to life. And retail has seen signs of recovery - with lockdown fatigue becoming the trigger for good footfalls and sales during the recent festival season.

My sense is that there may not be much downside from these levels even if the Amazon-Future ruling goes against Reliance - but the upside could be huge if it is in favor of Reliance. Max 5% on the downside, but almost 20% on the upside.

But there is another aspect to it. If Reliance doesn’t buy Future Retail, Future will actually be “damaged goods” - so, losing Future actually will save Reliance ₹25,000 crores in upfront cash, and ₹20,000 crores in assumed debt - and whoever acquires Future will find it less attractive because of the erosion impact on the business from protracted proceedings. Reliance may like to keep Future in-house, but may not mind it too much if someone else ends up acquiring a much weaker Future!

At current share prices, as investors, the risk reward equation seems to be heavily in favor of reward.

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